Could I avoid federal income tax by starting a superPAC when I win the Powerball?

[Fear_Itself]

Many Powerball winners get an investment advisor and set up a trust to receive their millions from a Powerball win. Has anybody considered setting up a superPAC? I recall when Steven Colbert created his, he had an attorney who was versed in such organizations on his show to explain how the money could be accessed for personal use, tax free and entirely legally:

Colbert launched his Super PAC — “Americans for a Better Tomorrow, Tomorrow” — in May, saying the money would be raised not just for political ads, but also “normal administrative expenses, including but not limited to, luxury hotel stays, private jet travel, and PAC mementos from Saks Fifth Avenue and Neiman Marcus.”

So long as the law was followed scrupulously, and a nominal amount was actually spent on political issues and candidates, would this be a good way to shelter a 200 million dollar windfall?

[Tom_Tildrum]

No, when you win the Powerball, you have to pay tax on your winnings. You can donate your after-tax winnings to a SuperPAC, but that doesn’t save you any money.

[Fear_Itself]

But I would never take possession of the winnings. The superPAC redeems the winning ticket.

[KneadToKnow]

If it worked, don’t you think someone would’ve done it by now?

[Kimmy_Gibbler]

@Fear_Itself

Many Powerball winners get an investment advisor and set up a trust to receive their millions from a Powerball win. Has anybody considered setting up a superPAC? I recall when Steven Colbert created his, he had an attorney who was versed in such organizations on his show to explain how the money could be accessed for personal use, tax free and entirely legally:

So long as the law was followed scrupulously, and a nominal amount was actually spent on political issues and candidates, would this be a good way to shelter a 200 million dollar windfall?

How do you suppose your planned PAC meets the requirements of IRC § 527(e)(1) and (2), which governs the formation and taxation of PACs?

Note also that 527(b) imposes a tax, at the highest prevailing rate, on PACs except as to income recieved through member contributions or political fundraising (527(c)). Since your PAC’s income is through direct receipt of lottery winnings, it would appear that income is not exempt, no?

[Fear_Itself]

@KneadToKnow

If it worked, don’t you think someone would’ve done it by now?

There’s a first time for everything.

[Fear_Itself]

@Kimmy_Gibbler

How do you suppose your planned PAC meets the requirements of IRC § 527(e)(1) and (2), which governs the formation and taxation of PACs?

Colbert was advised by FEC Chairman Trevor Potter to set up a Delaware 501(c)(4) shell corporation to which donations can be given anonymously without limit and used for political purposes, similar to American Crossroads.

Donations made to the shell corporation could be funneled to ColbertPAC without disclosure of the ultimate source of the donation. When Colbert asked what the difference is between this and money laundering, Potter answered, “It’s hard to say.”

Colbert was the sole board member of the shell corporation and initially served as president, secretary, and treasurer of his organization, whose stated purpose was to educate the public.[16] However, the organization could legally donate to his Super PAC, lobby for legislation, and participate in political campaigns and elections, as long as campaigning is not the organization’s primary purpose. Colbert’s organization could legally accept unlimited funds which may be donated by anonymous donors. Since the FEC doesn’t require full disclosure, Colbert likened his 501 (c)(4) to a “Campaign finance glory hole”

So I guess the 501 (c)(4) shell corporation would receive the Powerball winnings, and funnel them to the super PAC. The fun doesn’t stop there:

Colbert’s lawyer, Trevor Potter, advised Stephen that he could form a second anonymous 501(c)(4), then make out a check with the remaining funds to his first 501(c)(4) along with an Agency Letter which instructed the original 501(c)(4) to pay those funds to the second 501(c)(4) and give dispersal instructions to that second 501(c)(4). In doing so, he could avoid telling anyone - even the IRS - where the money went.[42]

So, after an appropriate period, I dissolve my superPAC and the money disappears.

[drewtwo99]

Seems you’ve worked out the legal bit. Now, how do we go about winning you that lottery? Have you checked which numbers are hot/due?

[Fear_Itself]

No, but the odds are finally favorable. $1 on a 175 million to one bet returns at least 244.7 million in a cash payout. So I’ve got that going for me.

ETA: The Powerball is $2 now. D’oh!!!

[Bricker]

@Fear_Itself

Colbert was advised by FEC Chairman Trevor Potter to set up a Delaware 501(c)(4) shell corporation to which donations can be given anonymously without limit and used for political purposes, similar to American Crossroads.

So I guess the 501 (c)(4) shell corporation would receive the Powerball winnings, and funnel them to the super PAC. The fun doesn’t stop there:So, after an appropriate period, I dissolve my superPAC and the money disappears.

How does the 501(c)(4) contend that it’s actions are primarily social welfare, as opposed to political advocacy, when almost 100% of its income is donated to a SuperPAC?

[Fear_Itself]

@Bricker

How does the 501(c)(4) contend that it’s actions are primarily social welfare, as opposed to political advocacy, when almost 100% of its income is donated to a SuperPAC?

I would assume the chairman of the FEC knows what he is talking about. Probably a lot of slack in the definition of social welfare. Karl Rove has been doing it for years.

[Bricker]

@Fear_Itself

I would assume the chairman of the FEC knows what he is talking about. Probably a lot of slack in the definition of social welfare. Karl Rove has been doing it for years.

The problem with that answer is twofold:

(1) if the IRS audits you, “the former FEC Chairman said I could,” is not a workable defense.

(2) his advice was not predicated on hiding lottery money.

Moreover, your response eviscerates the need for the thread. If you have convinced yourself that because Colbert was supposedly given this advice by the former FEC chair, it’s beyond any challenge, then what’s the point of the thread?

I am not remotely as sanguine as you are about the accuracy of the claim that a 501(c)(4) could receive a million-plus lottery payout and donate it to a SuperPAC with no consequences.

[Fear_Itself]

@Bricker

The problem with that answer is twofold:

(1) if the IRS audits you, “the former FEC Chairman said I could,” is not a workable defense.

Well, duh, counselor. If I had $200 million dollars, I am sure I could hire Caplin & Drysdale, where Trevor Potter leads the political law division, which advises PACs for a living.

I am not just trying to get away with tax avoidance either. If I had 200 million, I think I could do a lot of damage in Washington, and statehouses around the country. Might be kind of fun to throw that kind of money behind progressive candidates and issues.

[Rand_Rover]

@Bricker

Moreover, your response eviscerates the need for the thread. If you have convinced yourself that because Colbert was supposedly given this advice by the former FEC chair, it’s beyond any challenge, then what’s the point of the thread?

. . . which is why I (an actual tax lawyer) am not responding.

[Munch]

@Fear_Itself

So I guess the 501 (c)(4) shell corporation would receive the Powerball winnings, and funnel them to the super PAC.

Donations to a 501(c)(4) are not tax-exempt - so I’m not sure why you think a 501(c)(4) would be able to redeem a winning lottery ticket without paying taxes on it.

[Bricker]

@Fear_Itself

Well, duh, counselor. If I had $200 million dollars, I am sure I could hire Caplin & Drysdale, where Trevor Potter leads the political law division, which advises PACs for a living.

I’m sure you could hire them, too. And I bet their advice would NOT include setting up a 501(c)(4) to wash your lottery money.

[Fear_Itself]

Ok, I yield on the tax advantage. I can’t avoid taxes by creating a superPAC.

Would there be any other advantages from a superPAC over creating a trust?

[Bricker]

@Fear_Itself

Ok, I yield on the tax advantage. I can’t avoid taxes by creating a superPAC.

Would there be any other advantages from a superPAC over creating a trust?

Of course: the ability to funnel donations of unrestricted size to your preferred candidates.

[BigT]

@Rand_Rover

. . . which is why I (an actual tax lawyer) am not responding.

Then what’s the point of reading this message board? I don’t give a crap about the OP, but I am interested if you agree with the assessment and why.

Just because the OP wants to remain ignorant doesn’t mean the rest of us do.

[Kyrie_Eleison]

@Fear_Itself

Ok, I yield on the tax advantage. I can’t avoid taxes by creating a superPAC.

Don’t give up on your cockamamie scheme so easily. The answer that’s missing is that you do not donate your winnings. You donate your ticket before the drawing, when it’s still only worth $2. Then the superPAC is responsible for any liability pertaining to its appreciation in value.